Economics and HPCT

CSGnet Archive CSG2004
1

[From Bruce Gregory (2004.01.24.1528)]

I've been struggling to see why economics seems so fascinating (and
flawed) to HPCTers. I think I now see the reason. Both deal with
one-dimensional models of humanity: homo economis and homo controlus.
The world apparently has room for only one such all encompassing model.

Neither model has a real place for emotions. (If you want to see
marriage treated as an economic exchange, take a look at _Hidden Order:
The Economics of Everyday Life_ by David Fiedman) There is, of course,
a PCT story about emotions, but the model works in exactly the same way
whether or not you buy the story. The HPCT model also has no place for
awareness and only a trivial role for memory.

Both models are sufficiently plausible that they are attractive. But
both are ultimately unsatisfying, and for similar reasons. Both make
excellent servants, but poor masters.

With this observation, I will accede to Rick's oft expressed desire
that I take a powder.

Bruce Gregory

"Everyone is entitled to his or her own opinions; everyone is not
entitled to his or her own facts."

Daniel Patrick Moynihan

"Everything that needs to be said has already been said. But since no
one was listening, everything must be said again."
                                                                                Andre Gide

2

[From Bill Williams 24 January 2004 12:34 PM CST]

[From Bruce Gregory (2004.01.24.1528)]

I've been struggling to see why economics seems so fascinating (and
flawed) to HPCTers. I think I now see the reason. Both deal with
one-dimensional models of humanity: homo economis and homo controlus.
he world apparently has room for only one such all encompassing model.

I am less critical of the "homo controlus" model than you are. This may be a result of the "homo controlus" model's capacity to do so much as a basis upon which to reconstruct economic theory that I don't feel much need to be critical of a tool that is working so well. I won't reprint my listing of stuff that I think replacing the prnciple of maximization with a control theory would do. But, the list is rather extensive, and I've recently added the massive anomoly of "sticky prices" to the list. The "Sticky prices" anomoly is considered to be a far more important issue than the Giffen paradox.

I am also much more critical of the principle of maximization than you seem to be. You say,

Both models are sufficiently plausible that they are attractive. But
both are ultimately unsatisfying, and for similar reasons. Both make
excellent servants, but poor masters.

While I would concede that maximization can, if it is dishonestly taught, appear quite plausible and be convincing. Very few people are going to revolt against the usual neo-classical instruction out of their own intellectual resources. Taking econ 101 as a freshmen when the course was taught out of Samuelson and Heilbronner's _Worldly Philosohers_ it wasn't until well into Spring term that I saw there was a major flaw in Samuelson. Samuelson made a dismissive comment about Max Weber. I wasn't quite sure why Samuelson said what he did, but it sounded like the way a professor sometimes gets out of an awkward spot by bluffing. But, it took another two years to work myself completely free from the neo-classical conceptions. I would disagree with you that maximization as it is employed in neo-classical economics is "an excellent servant." I think for some purposes a market works well, or at least well enough, or better than any known alternative institutional structure. The principle of maximization seems to provide a plausible story explaining why a market works. The standard presentation, however, almost never mentions the many paradoxes and anomolies that maximization in a market generates.

Consider the case of "sticky prices." According to the principle of maximization, in a market context, a consumer ought to make quatity adjustments for all commodities purchased whenever there is a change in the price of any commodity. This is what maximization demands of a rational consumer. However, according to the principle of maximization the price of a commodity is "just a price." The consumer attaches no significance to price tags. Keynes, however, points out that a laborer behaves differently when the real wage rate is reduced depending upon whether the reduction is generated by an increase in the price level, or a reduction in the money wage. Small increases in the price level, Keynes says, will not be resisted. Not at least to the same degree as a real wage reduction that is a result of a decrease in money wages. There are several possible explainations, and the various explainations are not necessarily mutually exclusive. But, one of the explaintions for the difference in behavior is that the money price of labor is in effect a truce between labor and management. To passively allow ones money wage, and real wage too, to be reduced is a defeat that is of more significance than a reduction of income resulting from an increase in the price level. The explaination that Keynes provides doesn't take this into account, but then Keynes' "explaination" of the phenomena is a description rather than a theoretical explaination-- so there is for the time being a lot of extremely valuable academic turf that as Nordhous says, "phenomena waiting for a theory."

You aren't really going to go away and leave me to the mercy of the flaming beds are you?

Bill Williams

3

[From Rick Marken (2004.01.26.2300)]

Bruce Gregory (2004.01.24.1528)--

I've been struggling to see why economics seems so fascinating (and
flawed) to HPCTers.

Economics became fascinating to me after reading TCP's book "Leakage".
His circular flow model and aggregate approach to analysis put the
economy in perspective for me. I had no previous opinions about
economics; I didn't think it was flawed or unflawed. So I didn't get
interested TCP's approach to economics because I thought there was
anything wrong with existing economics. I got interested in TCPs
approach to economics because I thought it made a great deal of sense
and because it seemed consistent with PCT. I built the H. Economicus
model as a way of illustrating what I thought was the relationship
between TCPs analysis and PCT.

I have described the H. Economicus model as an "implementation" of
TCPs model. But I think what I was actually doing was an early version
of something like the testbed model, with TCPs circular flow/aggregate
analysis as a description of the environmental relationships in the
economy. What I added were the agents that interact with this
environment. The agents were two control systems, A GNP controller (the
aggregate producer/consumer) and the aggregate manager.

TCP's model of the circular flow of money, goods and services is shown
in Figure 1 in the E. Economicus in _More Mind Readings_. This Figure
shows TCPs model of the flow of money between aggregate producer and
consumer. The figure shows that the aggregate producer hands over PQ'
dollar to the aggregate consumer who hands it right back to the
aggregate producer less any leakage and increased in dollar value by
what TCP calls auto-inflation. Leakage is simply the difference between
what the aggregate consumer gets as income (which is GNP) and what the
aggregate consumer uses of that income to pay for the goods and
services less any leakage (which is unmeasured; TCP though he measured
it as savings and undistributed corporate profits, but I no longer
believe that this is a measure of leakage; I don't think leakage is
measurable) and increased in dollar value by what TCP calls
auto-inflation. The diagram also shows goods and services being
produced as a side effect of this flow, the goods and services
presumably being consumed by the aggregate consumer.

There are no agents in the circular flow model described in FIgure 1.
H. Economicus is simply two control system agents, an aggregate GNP
controller and an aggregate manager, that make the flow happen. These
agents are shown in Figure 2. These agents do the things that are only
implied in the flow diagram of Figure 1. For example, the aggregate
manager is responsible for raising the prices that produce
"auto-inflation". The aggregate GNP controller's increasing reference
for goods and services (the increase corresponding to an increase in
the population of consumers) contributes to the growth in GNP (created
by the output -- production -- efforts of the GNP controller).

This was a very high level model. Many details were left out, like the
banks that create the money that is added to the economy, and the
distribution of income across the aggregate consumer, and so on. These
things could easily be added. But the model worked in the sense that,
which controlling GNP and PQ-PQ', it produced the major features of the
flow that were derived by TCP (such as auto-inflation). Moreover, you
could fit the output of the model -- temporal variations in GNP and
inflation rate) to actual data on GNP and inflation variations over
time by varying the main free parameter of the model, leakage.

When I presented the model in Boston, I expected that people would be
pleased to see an attempt at a PCT approach to economics. Instead, the
reaction was quite negative and non-constructive from everyone, it
seemed, except Bill Powers. Sometime after the meeting, when I
published the paper on H. Economicus in _More Mind Readings_ (simply to
illustrate the application of control theory outside of psychology)
Bill P. criticized the model as well. Bill took me to task for
publishing the paper without having it reviewed first. But I had
circulated the paper at the meeting in Boston and I took Bill's lack of
criticism as tacit acceptance (the other criticisms not having been of
much use since they were completely non-constructive, being on the
order of "that model is junk"). When I reviewed Bill's comments on the
paper this weekend, I found that I disagreed with many of them. But
they were somewhat more substantive (I've learned that economics, like
politics, is not for the faint hearted). Rather than answering those
criticisms, however, what I will do is revise the model. I was going to
revise it anyway and I think I will try to get to it this year. I don't
work well in a team so I think I'll get better results if I just work
on this on my own, to the extent that I work on it at all. I have lots
of other work to do, that pays the bills, but if I do make a revised
version of H. economicus and if I like what results I'll run it by some
economist friends of mine at Rand and see that they think. My
experience is that they tend to take a far more constructive approach
to criticism than what I've seen lately on CSGNet.

With this observation, I will accede to Rick's oft expressed desire
that I take a powder.

I don't believe I have ever expressed a desire that you or anyone else
take a powder. I do remember wondering why you and your friends stay on
CSGNet if all you want to do is insult Bill and me and throw off
sarcastic one liners. But that's your business.

RSM

···

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Richard S. Marken
marken@mindreadings.com
Home 310 474-0313
Cell 310 729-1400

4

[From Bill Williams 27 January 2004 4:00 AM CST]

[From Rick Marken (2004.01.26.2300)]

Bruce Gregory (2004.01.24.1528)--

I've been struggling to see why economics seems so fascinating (and
flawed) to HPCTers.

Economics became fascinating to me after reading TCP's book "Leakage".

If there was anything that could conclusive demonstrate that there is
no such thing as the neo-classical theorist "rational consumer" it
is Rick's choice to buy and read TCP's book "Leakages."

By-the-way, out of all the economics books that you could have
read, how did you choose TCP's "Leakages?"

His circular flow model and aggregate approach to analysis put the
economy in perspective for me. I had no previous opinions about
economics;

I presume you held a previous opinion that there _was_ such a thing
as an economy. Or, were you the prototypical "blank slate?"

[The H. Economicus] was a very high level model.

So, when you took the enourmous leap in the wrong direction,
you started out at high altitude.

When I presented the model in Boston, I expected that people would be
pleased to see an attempt at a PCT approach to economics. Instead, the
reaction was quite negative and non-constructive from everyone,

How is this possible. If you look at the video record of the
Boston presentations you should be able to see that following
your pressentation, you got a nice round of appreciative
applause. The audience was as clueless as you were about what
economic modeling is about. But, they were warmly supportive.

You say, that Bill Powers in contrast to everyone else applauded
your H. Economicus model. I would disagree about the, "in
contrast" part. But, I would agree that Bill Powers did
applaud the paper.

it seemed, except Bill Powers.

Sometime after the meeting, when I published the paper on
H. Economicus in _More Mind Readings_ (simply to illustrate
the application of control theory outside of psychology)
Bill P. criticized the model as well. Bill took me to task
for publishing the paper without having it reviewed first.
But I had circulated the paper at the meeting in Boston and
I took Bill's lack of criticism as tacit acceptance

First, I think it was unwise to ignore what you describe as
the almost completely negative assessment of the paper, by
the audience at Boston and depend solely upon Bill Powers'
approval as a basis for publishing the paper.

Second, some of the rest of us were more than willing and
even eager to provide information that would have assisted
you in improving the paper.

I find Rick's statement to be extremely interesting. Was Bill
Powers guilty of an intellectual crime of "withholding
information." It would appear that Rick's statement would so
indicate.

(the other criticisms not having been of much use since
they were completely non-constructive, being on the order
of "that model is junk").

If you tell us who said this. I wish to congratulate them on
their perceptiveness-- despite their being I suppose
non-contributors. By-the-Way could you dentify for me the
constructive element in Bill's description of the H. Economicus
scheme as "a giant leap in the wrong direction?" I think I
am missing something here.

When I reviewed Bill's comments on the paper this weekend, I
found that I disagreed with many of them.

I think a detail review of the basis of your disagreement would
be inorder. I've said it before, but I thought Bill Powers did
an excellent job of critiquing the paper-- the gratuituous
"a giant leap in the wrong direction, of course, aside. But,
then I haven't found, as best I can remember, anything about
control theory modeling-- as such -- about which I am in
disagreement with Bill Powers.

In regard to criticism:

I have to admit that when I see something wrong in
a paper, or model or what ever, I do in a sense "withhold
information." As an economy measure if in a casual inspection
of a car I can see that all the tires are shot, the battery is
dead, the transmission is frozen, I ordinarily wouldn't go to
the trouble of doing a compression check on the engine. In the
same way, when criticizing a paper informally-- that is where I
will not be publically judged on the exhaustiveness of my
critique, I limit myself to making two or three points of
criticism. If the paper's author find's my critique helpful
and solicites a deeper review ordinarily I will provide a more
extensive, deeper criticism. However, if what I initially say
is entirely dismissed, I take the view that I have fulfilled
any, and all, responsiblities that I have as a critic.

Bill Powers has a very different view of the responsiblities of
a critic. Although he hasn't articulated these views
systematically, as best I can judge, he is of the opinion that
a critic has the responsiblity of rewriting the paper being
subjected to criticism.

Rick goes on to say,

(I've learned that economics, like politics, is not for the
faint hearted).

You may be right. I have been told that as a group economists
are not ordinarily very sympathetic people.

Rick says,

Rather than answering those criticisms,

I think you are missing a great opportunity. I have reformed
and realized what a mistake I have been making by "Withholding
Information." I won't promise anything, but why not "answer"
the criticism.

This would give the rest of us the benefit of the information
that Powers has been withholding.

We could have a great session. Economists call them "shoot
outs." It gets us warmed up to run budget hearings. And,
let me tell you, no one "withholds [any] information." The
great danger in these sessions is that you might run out
of amunition.

I don't work well in a team

So, then how many members are there on the Test Bed project?
Remember under the rules "withholding information" is a sin.

so I think I'll get better results if I just work on this
on my own,

I would strongly advise against this. Remember what Keynes
wrote about the dangers of working in issolation. If I
remember it correctly he said,

   "... in isolation it is absuredly easy it is easy fix
    on a delusion and end up in bedlam.

I will have to look up the quote I don't have it quite right
and Keynes' really said it well.

Rick seems close to dispair over the hostile CSG enviroment
and the prospect of making progress with the H. Econimucs
paper.

to the extent that I work on it at all.

Don't give up on this, remember we are all here to help.

I have lots of other work to do,

But, it can't possibly make the contribution to human happiness
that the H. Economicus model would make. Then too abandoning the
project might even cast you into the pit of the non-contributors.

if I do make a revised version of H. economicus and if I
like what results I'll run it by some economist friends of
ine at Rand and see that they think. My experience is that
hey tend to take a far more constructive approach to
criticism than what I've seen lately on CSGNet.

I would have to reluctantly agree with you. Bill Powers crack
that the H. Economicus paper was "a giant leap in the wrong
direction" was completely uncalled for. Your friends at Rand,
I am sure, will treat you better.

In another matter, Rick

... remember[s] wondering why {Bruce Gregory] and your friends
stay on CSGNet if all you want to do is insult Bill [Powers]

First: I can't speak for those who Rick appears to be identifying
as "friends." In my own case, when Bill Powers says things about
Keynes that are crankish, I feel an obligation to point out that
what he has written is ignorant and foolish. I Bill Powers
doesn't care about the truth, I do.

Second: I doubt very much if _all_ Bruce Gregory "wants to do is
to insult Bill Powers. I doubt that you could prove this. Some
times Bruce sends me congraulatory meassages when one of my
non-contributions gives him some pleasure. And, I in turn have
found Bruce's non-contributions to sometimes contain useful
insights. Marc and I have shared an interest we both have in
regard to control theory and contemporary biological sciences.
So, I don't think you characterization of Bruces, nor his friends
_only_ being interested in insulting Bill Powers is entirely
correct.

Rick goes on to include himself with Bill Powers as having
been "insulted."

Did someone say something even worse than Bill Powers did
when he gratuitously desribed your H. Econmiuc paper as
having been "a giant leap in the wrong direction?" If this
is true it is really a sad day for CSGnet. Can anyone tell
me why is the toy poddle howling like that?

Bill Williams

5

[From Rick Marken (2004.01.27.1000)]

Bill Williams (27 January 2004 4:00 AM CST)

Rick Marken (2004.01.26.2300)--

Economics became fascinating to me after reading TCP's book "Leakage".

By-the-way, out of all the economics books that you could have
read, how did you choose TCP's "Leakages?"

I didn't buy "Leakages". A complimentary copy was sent to me and I read it
because I was interested in seeing how the father of my intellectual hero
thought. I thought TCP's discussion of the economy in terms of the
composite producer and consumer was brilliant and it made sense to me
immediately. I could see that the composite producer and consumer were two
sides of a composite control loop. The only books on economics

I had read before "Leakage" were "The Worldly Philosophers", which I enjoyed
as a set of biographical sketches, and "Money" by Galbraith, which I though
was interesting. After reading TCPs book I picked up a couple of economics
textbooks, including Smith's "Wealth of Nations". I now have Stiglitz on my
shelf. Other than TCP's book, though, I think the first few chapters of
"Wealth of Nations" are best thing I've read about macro economic. The
other books on economics that I;ve read didn't really deal with aggregate
(or composite) level economics in a way that I found enlightening. There is
also an amazing absence of empirical data in economics texts. Another reason
I liked TCP's book is that it discussed macro economics in terms of actual
macro economic data.

I presume you held a previous opinion that there _was_ such a thing
as an economy. Or, were you the prototypical "blank slate?"

I had only the vaguest conception of of what an "economy" was at the
aggregate level. TCPs composite producer/consumer analysis provided me with
what I find to be a very useful conceptual framework for understanding the
macro economy.

[The H. Economicus] was a very high level model.

So, when you took the enourmous leap in the wrong direction,
you started out at high altitude.

I don't think the model was an enormous leap -- more like atentative step --
but I agree that it was innovative. And there are degrees of wrongness. The
model might have been a leap in the wrong direction but I think it was off
by 10 degrees, not 180. I think the model can be improved relatively easily.

You say, that Bill Powers in contrast to everyone else applauded
your H. Economicus model. I would disagree about the, "in
contrast" part. But, I would agree that Bill Powers did
applaud the paper.

It's nice that people applauded. I didn't recall. All I recall were some
weirdly irrelevant comments about the paper and your dismissive,
non-constructive remarks about my not taking economics seriously.

By-the-Way could you dentify for me the
constructive element in Bill's description of the H. Economicus
scheme as "a giant leap in the wrong direction?" I think I
am missing something here.

One constructive comment concerned controlling GNP. He said the model
shouldn't do that if the model was to be used to determine the effects of
leakage on change in GDP growth. This is a specific suggestion about the
model. Another suggestion was to keep P and Q separate so that Q could be
controlled independently of the amount spent to purchase whatever portion of
Q is purchased. I agree with the second comment but not the first. But I
count both comments as constructive because they pertain to actual features
of the model. Bill also suggested "balancing the books" and not having money
appear out of nowhere (the basis of the "magic" comment). Both of these are
also constructive comments because they pertain to the model. I know how to
fix the model to satisfy these latter two suggestions, which I think are
both useful.

When I reviewed Bill's comments on the paper this weekend, I
found that I disagreed with many of them.

I think a detail review of the basis of your disagreement would
be inorder.

I think it would be a waste of time. I think the proper way to respond to
criticisms like this is improve the model (if I believe it needs to be
improved, which I do). Many of Bill's comments with which I disagree result
from the fact that Bill did not have access to the actual model, just the
description of it in the paper. I could send the spreadsheet (in fact I will
attach it to this post) that implements the model but it would be very tough
for anyone to figure out what is going on in the model by just looking at
the spreadsheet. So one of the things I have to do with the next iteration
of the model is make it more transparent. I think I can do this by
organizing the spreadsheet better, showing cell formulas in cells adjacent
to the formula cells and making nice graphs of the results.

I have lots of other work to do,

But, it can't possibly make the contribution to human happiness
that the H. Economicus model would make. Then too abandoning the
project might even cast you into the pit of the non-contributors.

I doubt it. I think my substantive contributions to PCT are obvious to most
everyone who read my posts or my published papers. But I'm not abandoning
the H. Economicus modeling anyway, just putting it on the back burner.

RSM

HEconomicus.xls (40 KB)

···

--
Richard S. Marken
MindReadings.com
Home: 310 474 0313
Cell: 310 729 1400

6

[From Rick Marken (2004.01.27.1000)]

Rick says,

[A] reason I liked TCP's book is that it discussed macro

economics in terms of actual macro economic data.

So, how would you assess the quality of the job that TCP's
did in his analysis?

I had only the vaguest conception of of what an "economy" was at the
aggregate level. TCPs composite producer/consumer analysis provided me with
what I find to be a very useful conceptual framework for understanding the
macro economy.

[The H. Economicus] was a very high level model.

So, when you took the enourmous leap in the wrong direction,
you started out at high altitude.

I don't think the model was an enormous leap -- more like atentative step --
but I agree that it was innovative. And there are degrees of wrongness. The
model might have been a leap in the wrong direction but I think it was off
by 10 degrees, not 180. I think the model can be improved relatively easily.

I would agree with you. The "model can be improved realitely easily."

You say, that Bill Powers in contrast to everyone else applauded
your H. Economicus model. I would disagree about the, "in
contrast" part. But, I would argue that Bill Powers did
applaud the paper.

It's nice that people applauded. I didn't recall.

No you didn't. you remembered something quit different.

All I recall were some weirdly irrelevant comments about the paper

Unfortunely they must have appeared "weidly irrelevant" to you. I
wonder who would you suppose is in a better position to make a
judgement about the question of "relevance" in economics. Me with a
ph.D. awarded in 1972. Or you, who has according to your report above
read many, many fewer books than I did by the time I was a highschool
senior. Who would you think is better prepared to assess the issue
of relevance within economics?

Rick goes on to complain of

your dismissive, non-constructive remarks about my not taking
economics seriously.

Well it was completely obvious to me that you had not taken
economics seriously when I read the paper you gave in Boston.
And, you haven't made much, if any progress since then.

I have lots of other work to do,

But, it can't possibly make the contribution to human happiness
that the H. Economicus model would make. Then too abandoning the
project might even cast you into the pit of the non-contributors.

I doubt it.

I was being sarcastic.

Bill Williams

7

[From Rick Marken (2004.01.28.0845)]

Bill Williams writes:

Rick Marken (2004.01.27.1000)]

All I recall were some weirdly irrelevant comments about the paper

Unfortunely they must have appeared "weidly irrelevant" to you. I
wonder who would you suppose is in a better position to make a
judgement about the question of "relevance" in economics. Me with a
ph.D. awarded in 1972. Or you, who has according to your report above
read many, many fewer books than I did by the time I was a highschool
senior. Who would you think is better prepared to assess the issue
of relevance within economics?

In discussions of ideas, degrees, number of relevant books read and even
reputation count far less with me than the scientific merit of the ideas
themselves. If this were not the case, then I would have dismissed PCT as
the ranting of a "shit for brains" crank with no PhD in Psychology. And I
would be very impressed by the ideas of Albert Bandura, who is currently
(according to surveys of PhD psychologists) the most highly respected living
psychologist.

I think it's great that you have a PhD in Economics and that you have read
an enormous proportion of the Economics literature. I think these are
wonderful accomplishments and that you deserve high praise for them. But
they hold no sway with me in discussions of ideas.

Best regards

Rick

···

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Richard S. Marken
MindReadings.com
Home: 310 474 0313
Cell: 310 729 1400

8

[From Bill Williams 28 January 2004 12:1O AM CST]

[From Rick Marken (2004.01.28.0845)]

In discussions of ideas, degrees, number of relevant books read and even
reputation count far less with me than the scientific merit of the ideas
themselves.

I wish you good fortune, and hope that you make even more gigantic leaps _in the wrong direction_ in the future.

Bill Williams

9

[From Rick Marken (2004.01.28.1105)]

Bill Williams 28 January 2004 12:1O AM CST]

Rick Marken (2004.01.28.0845)

In discussions of ideas, degrees, number of relevant books read and even
reputation count far less with me than the scientific merit of the ideas
themselves.

I wish you good fortune

No you don't, Bill. You hate my guts. Why lie?

and hope that you make even more gigantic leaps _in
the wrong direction_ in the future.

That's more like it.

RSM

···

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Richard S. Marken
MindReadings.com
Home: 310 474 0313
Cell: 310 729 1400